Dutch central bank president Klaas Knot has warned the Netherlands could be plunged into a recession unless trade unions moderate their wage demands.

Knot, who last year urged employers to increase wages because of high inflation, said in an interview on current affairs show Buitenhof that he was concerned about some of the pay deals being struck.

This, he said, could drive up inflation and lead to the European Central Bank again increasing interest rates. That would damage the economy, he said. ‘And then we will all be worse off.’

The unions have been calling for higher wages to offset the impact of inflation, which was 5.2% in April, according to national statistics agency CBS. Food prices rises, however, are far higher at around 13%.

In addition, the high profits made by companies such as AholdDelhaize, Unilever and Shell, have raised eyebrows and were condemned by Tuur Elzinga, head of the biggest Dutch trade union federation FNV, in an interview with the Telegraaf on Saturday.

Knot, in Buitenhof, urged unions and employers to keep a cool head. The high corporate profits booked in 2022 were down to a unique combination of factors and this year and 2024 will be much more difficult, he said.

The ECB interest rate hikes are also beginning to have an impact and the housing market is turning, he said. In time, inflation, which is the key problem at the moment, will fall again, the central bank chief said.

Knot said at the moment he is optimistic that the Netherlands can avoid recession but if wages go up by more than 6% to 7%, employers will have no choice other than to put up prices again, causing a wage-price spiral, he said.

In that case, a ‘much more aggressive monetary policy will be needed to get the genie back into the bottle,’ he said. ‘We are not there yet, and I am convinced that things don’t need to go that far. But I would call on unions and employers to keep cool heads and act responsibly.’